Pound Wavers Higher following Mixed Employment Report

Pound (GBP) Firms amid BoE Rate Hike Bets

The Pound (GBP) strengthened yesterday as the UK’s latest labour market report added to expectations that the Bank of England (BoE) will again raise interest rates by 50 basis points at its next meeting.

Although real pay continues to fall at a record pace due to surging inflation, wage growth remains at an elevated level. Meanwhile, the UK’s unemployment rate held close to a 48-year low at 3.8%. This apparent strength in the country’s labour market gives the BoE more leeway to increase interest rates.

This morning, UK inflation surprised markets by jumping from 9.4% to 10.1% in July (above the expected 9.8%). While this increases the likelihood of another half-point rate rise from the BoE next month, it also raises stagflation fears. Movement in the Pound may be mixed in response.

Euro (EUR) Wavers amid Shifting Sentiment

The Euro (EUR) initially slipped yesterday after Germany’s ZEW economic sentiment index for August unexpectedly dropped to a near 14-year low.

The single currency clawed back some losses in the afternoon thanks to its negative correlation to the US Dollar (USD), which experienced a pullback.

Looking ahead, the Eurozone’s preliminary employment change figures for the second quarter of 2022 could support EUR as economists expect ongoing growth in the labour market. In addition, the second estimate for Eurozone GDP could also cause some movement if it differs from the previous results.

US Dollar (USD) Retreats as Risk Appetite Improves

The US Dollar firmed yesterday morning as a rise in US Treasury yields lifted the ‘Greenback’.

However, as the market mood improved over the course of the day, investors moved away from the safe-haven US Dollar in favour of other riskier currencies.

This afternoon, an expected slowdown in US retail sales could impact the ‘Greenback’. In the evening, the minutes from the last Federal Open Market Committee (FOMC) meeting could also cause some movement. Any hawkish hints may boost USD.

Canadian Dollar (CAD) Shows Resilience despite Drop in Oil

The Canadian Dollar (CAD) was mixed yesterday, strengthening against its weaker peers despite a drop in oil prices and a cooldown in Canadian inflation.

In the absence of Canadian data today crude prices could drive most movement in CAD.

Australian Dollar (AUD) Dragged Down by Falling Commodities

The Australian Dollar (AUD) fell overnight, despite an upbeat mood, as the ongoing pullback in commodities prices weighed on the resource-linked currency.

New Zealand Dollar (NZD) Volatile as RBNZ Raises Rates

The New Zealand Dollar (NZD) initially spiked last night after the Reserve Bank of New Zealand (RBNZ) raised interest rates by 50 basis points. However, the ‘Kiwi’ shed its gains following cautious comments from RBNZ Governor Adrian Orr. Orr ruled out a 75-bp hike and warned of ‘sub-par growth’ in New Zealand.

Samuel Birnie

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